INTRODUCTION: One can safely assume that the menace of money laundering has been prevalent ever since the origin of money, such is the nature of a crime itself. It takes its first breath as soon as society lets it. In India and almost every other country, money laundering has been responsible for plaguing the state’s resources and depriving the general population of their hard-earned resources. To counteract this, all the signatories to the Vienna Convention were directed to recognise Money Laundering as a criminal offence and to enact the necessary laws against it.
The parliament, in response to the international conventions against money laundering, enacted the Prevention of Money Laundering Act, 2002. Ever since its enactment, multiple petitions have been filed in several competent courts to dispute its alleged stringent provisions. The Hon’ble Supreme Court of India was called upon to decide the validity and further interpretation of certain disputed provisions of the Prevention of Money Laundering Act, 2002. It had been widely contested over about 80+ petitions that the investigative provisions in the PMLA, 2002 were ultra vires to the constitution, citing violations of fundamental rights namely Article 14, Article 20, and Article 21 of the Indian Constitution. The petitioners argued over Sections 3,5, 8, 16, 17, 19, 24, 44(2), 45, 46, 50, and 63 of the Prevention of Money Laundering Act, 2002.
The Hon’ble Supreme Court of India decided to hear the case by way of clubbing all the issues raised relating to interpretation and validity instead of dealing with specific grievances.
The petitioners regarded multiple sections of the PMLA, 2002 as unconstitutional and in violation of the rights of an accused. The petitioners raised the following concerns:
- Is the ECIR (Enforcement Case Information Report) opaque, arbitrary, and violative of the constitutional rights of an accused?
- Is the investigative procedure of a case under the PMLA, 2002 in violation of Section 157 of the Criminal Procedural Code, 1973?
- Can those innocent of the crime of Money Laundering also be charged with it due to the wide interpretation of the definition of Money Laundering mentioned in Section 3 of the PMLA, 2002?
- Is it fair that the statements of an accused can be used as evidence against him pertaining to Section 50 of the PMLA, 2002?
- Should special acts such as the PMLA, 2002 also find parallel values to standard procedural acts such as the CrPC, 1973?
- Are the provisions in the act disproportionate to the severity of the crime?
- Should the Enforcement Directorate be classified the same as the police?
- Is the difference between a chargesheet under the CrPC, 1973, and the complaint under PMLA, 2002 just a nomenclature norm?
- Is the reverse burden of proof in cases under PMLA, 2002 ultra vires to the constitution?
- Are there enough safeguards in the PMLA, 2002 to guarantee a fair investigation and proceeding trial?
- The enforcement directorate follows an investigative procedure that completely undermines the rights of an accused enshrined in our constitution. (Article 20 of the Indian constitution) The ECIR ((Enforcement Case Information Report) is cited as an internal document that doesn’t need to be disclosed, and only the mere hearing of the charges is customary.
- The definition of Money Laundering in Section 3 of the PMLA, 2002 has been given a wide interpretation by allowing the word “and” to be read as “or”, giving way for those who didn’t commit the crime to be charged with it.
- The statements of an accused can be used against them as evidence in court, all while they could be unaware of the charges against them since the ED is not required to inform them of the same, which clearly leads to self-incrimination.
- It was submitted that the ED must satisfy that the “proceeds of crime” were projected as untainted property for there to be an ECIR filed against an accused.
- The ED is technically the same as the Police and thus should be held to the same standard and empowered with no power that overrides the rights of an accused.
- The fact that a penalty or an arrest can be the consequence of giving an incorrect statement leads to conclude that the provisions under the act are draconian and unconstitutional.
- The reverse burden of proof is a destruction of the presumption of innocence which is the bedrock of our criminal justice system.
- The ECIR is the same as the FIR. It contains the grounds of arrest and details of the offences; and as such, without the knowledge of the ingredients of such a document, the ability of the accused to defend himself at the stage of bail cannot be fully realized. It may also hamper the ability to prepare for the trial at a later stage.
- The PMLA, 2002 does not have adequate safeguards to guarantee a fair investigation and a fair trial and is limited to Sections 16 to 19 and 50 of the PMLA, 2002.
- As Section 45 of the PMLA, 2002 was held unconstitutional by the decision in Nikesh Tarachand Shah, it cannot be brought back to life by a subsequent amendment that seeks to remove the constitutional objection.
- The ED has in the past widened its investigation beyond what was contained in the ECIR which was not the intent at the time of enactment, due to the lack of efficient safeguards.
- The arguments against the severity of the provisions of the act do not take into consideration the international impact and its subsequent obligation to the state. Financial crimes such as money laundering affect the economies of other countries as well and thus call for strict actions against it.
- The PMLA, 2002 is not a penal statute but a hybrid statute with preventative, regulatory, and penal aspects. Thus, it cannot be equated with acts that regulate other crimes such as the CrPC 1973. The PMLA, 2002 is a conscious departure from the CrPC, 1973 due to the peculiar nature and far-reaching consequences of Money Laundering since the CrPC, 1973 is a generic procedural law and does not have any universal application due to the peculiar nature and far-reaching consequences of Money Laundering.
- The wide interpretation of Section 3 of the PMLA, 2002 is preventative in nature. If a person conceals something (proceeds of crime), it is an act committed knowingly and, thus, the question of that person projecting that very thing either as tainted or untainted does not arise.
- Further, all the terms in the definition after the word “including” are not dependent on each other to be construed as a crime but independent of the offence of Money Laundering.
- The word “and” in the definition was always meant to be read as “or” as any interpretation other than this would fail to fulfil the legislative purpose of the act.
- The arguments against the legislature’s decision to enact a law with provisions not in compliance with the CrPC, 1973 are unfounded. The parliament is well within its right to prescribe a different procedure than the ones in CrPC, 1973, provided that there are safeguards to ensure that it aligns with the constitutional values.
- The Enforcement Directorate cannot be treated as police officers as they are not police officers under this act and can thus, not be held to the same standards as a police officer would.
- Due to the nature of the offence, and the potential criminal having the resources to flee the charges, the provision of an FIR, or prior submission of it before an arrest was deliberately avoided by the legislature. The ECIR is an internal document only meant for administrative convenience.
- The contention regarding the lack of safeguards is unjustified. There are multiple safeguards to all the sections highlighted by the petitioners, especially in Sections 5&19 such as the arrested person to be produced before the magistrate within 24 hours of the arrest and the reasons for the accusation to be put in writing and submitted.
- It is stated that the twin conditions under Section 45 of the PMLA, 2002 are reasonable from the standpoint of the accused and his rights under Article 21 of the Constitution, which provides an objective criteria and intelligible differentia, hence, does not violate Article 14 of the Constitution.
- The recording of a statement under Section 50 of the PMLA, 2002 does not violate Article 20(3) of the Indian constitution if there hasn’t been a formal complaint against the person and he is not accused yet.
- The burden of proof in this act deliberately shifted to the accused was imperative due to the seriousness and gravity of the offence and to prevent the offenders of such serious crimes to be beneficiaries while the society suffers an economic loss.
JUDGEMENT & RATIONALE
The Hon’ble Supreme Court on 27 July, 2022 delivered it’s judgement upholding the constitutional validity of the Prevention of Money Laundering Act, 2002. The court cited the legislative intent behind the act and justified the stringent provisions of the act as parallel to the constitutional values of the country and at par with the fundamental rights.
It gave the following rationale to establish the validity of the challenged provisions:
- Section 3 of the PMLA, 2002
The court held that the interpretation was not too wide and if a person was directly or indirectly involved in the offence, he must be held guilty of committing the same. Such was the legislative intent of the act and the view that the crime has only been committed if the money is laundered is invalid.
- Section 5 of the PMLA, 2002
The court cited the various safeguards present in the act and cited them in the judgement upholding the validity of the act.
- Section 8 of the PMLA, 2002
The court clarified the petitioners’ doubt regarding the possession of property by stating that it was only to be done in exceptional cases and not unless an order of confiscation is formally passed .
- Sections 16 &17 of the PMLA, 2002
The court justified the sections by citing inbuilt safeguards available such as mandating exercise only by high-ranking officials and the recording of reasons.
- Section 18 of the PMLA, 2002
The court cited safeguards justifying the provisions such as the accused being released if the magistrate holds that there are no grounds for arrest as well as a list required to be made of all things taken in possession by the authorities and upheld the validity of the same.
- Section 19 of the PMLA, 2002
The court stated that the act provides for inbuilt safeguards to be adhered to by the ED such as the recording of reasons for believing the accused’ involvement in money laundering.
- Section 24 of the PMLA, 2002
The court refuted the arguments against the act by stating that the rule that the burden of proof is on the prosecution is not a “fossilised doctrine” and can be reversed to prevent offenders to be major beneficiaries.
- Section 44 (2), 45, 46 of the PMLA, 2002
The court rejected the claim that the twin bail conditions were disproportionate, stating the severity and farfetched consequences of the crime along with the influential nature of the offenders.
- Section 50 of the PMLA, 2002
The court clarified the stages of investigation that allow for statement by the accused to be admitted as evidence and upheld its validity.
- Section 63 of the PMLA, 2002
The court stated that this provision is only an enabling provision meant to reduce non-compliance with the officers and refuted the arguments against it.
The Hon’ble Supreme Court, however well founded in their justification regarding the severity and international component of Money Laundering, in my humble opinion, failed to recognise the potential misuse of the act. The ECIR, being an “internal document” is an unjustified claim. The reluctance of framing of charges and permission before arrest must be valid considering the potential access to resources at the hands of the accused but the blatant refusal to provide the ECIR restricts the accused from being able to properly defend himself at trial. While “draconian” may be a stretched perception of the act, by way of a cursory reading of it; the argument that it may be extremely harsh to the innocent is well-founded.
The act, in my opinion, requires additional provisions for redressal and compensation for those, against whom the allegations of Money Laundering, hold no merit. The court decided the validity of most of the harsh provisions of the act against the gravity of the crime, but failed to recognise that the act misses the heart of Indian criminal justice system: “innocent until proven guilty”.
By Shreya Agarwal
KES’ Jayantilal H. Patel Law College
 2022 SCC OnLine SC 929
 (2008) 11 SCC 1
 Supra note 1
 Supra note 1